The Executive Board of the International Monetary Fund (IMF) completed today the seventh review under the SDR 1.99 billion (US$ 3.04 billion) Stand-By Arrangement for Uruguay. Completion of this final review makes SDR 139.8 million (about US$ 213.8 million) immediately available to Uruguay. In completing the review, the Board granted a waiver for the nonobservance of one performance criterion related to the incorporation of loan information in the liquidation funds into the credit registry.

The Stand-By Arrangement was approved on March 25, 2002 in an amount equivalent to SDR 594.1 million (about US$ 908.7 million) for a 24-month period starting April 1, 2002 (see Press Release No. 02/14) and was augmented by SDR 1.16 billion (about US$ 1.77 billion) on June 25, 2002 (see News Brief. No. 02/54), and by SDR 376.0 million (about US$ 575.1 million) on August 8, 2002 (see News Brief. No. 02/87), and reduced by SDR 139.8 million (about US$ 213.8 million) on August 27, 2004 (see Press Release No. 04/180). Total disbursements under the Stand-By Arrangement, including the amount approved today, is SDR 1.99 billion (about US$ 3.04 billion)

"Supported by the current IMF Stand-By Arrangement, Uruguay's economic program has successfully steered the economy out of the 2002 financial crisis while boosting economic growth, keeping inflation well under control, and substantially strengthening the international reserve position. The favorable results reflect the implementation of prudent macroeconomic policies, diversification of trade, and structural reforms, especially in the banking system, as well as a supportive external environment. The authorities should be commended for leaving behind stronger public finances and a reinforced policy platform for the incoming government to launch its own policy package aimed at achieving high quality growth and sustainable public finances for the medium to long term.

"Uruguay's public finances have strengthened considerably. However, despite significant improvement in the public debt profile, the debt burden remains high, and further fiscal tightening will be needed to bring it down to a sustainable level. Key fiscal reforms for the medium term should include strengthening the tax system and tax administration, reforming the specialized pension funds, and improving the budgetary process.

"Monetary policy has been conducted prudently. The incoming government's decision to continue with the current policy framework is appropriate. Uruguay will benefit from taking advantage of the favorable external situation to bolster its international reserves further. In addition, steps to strengthen the autonomy and financial position of the central bank will be helpful in bolstering its ability to pursue appropriate monetary policies.

"Banking reforms have progressed well, and the health of the financial system has improved markedly. Insolvent banks have been closed, and the liquidation of their assets is moving forward. Bank supervision and regulation have been strengthened, and the authorities are working to bring them fully in line with international standards. The restructuring process will need to ensure that the banking system can return quickly to its role of channeling financial resources to support economic growth, and to reduce the government's exposure to contingent costs from the restructuring process.

"The incoming authorities have made a welcome commitment to build on the progress made to date. They face important challenges that still confront the Uruguayan economy. Going forward there is clear potential for the recent virtuous cycle of strong policies, economic growth, and social progress to continue, if—based on a broad domestic consensus—the new authorities reinvigorate the process of carrying out pending structural fiscal reforms, completing ongoing banking reforms, and creating an environment conducive to increased private investment and productivity growth. The incoming authorities' intention to ensure that any increased spending under the social emergency program is accommodated within the existing overall budget constraint is welcome. The recent accord among the main political parties on key policy principles bodes well for Uruguay's prospects," Mr. Carstens said.